Ex-Parte GST Orders Set Aside Upon 10% Deposit to Allow Merit-Based Adjudication.

The Dispute: Short Declaration vs. Lack of Representation

The Conflict: The Tax Department issued a Show Cause Notice (SCN) alleging that the petitioner had short-declared their tax liability.

The Revenue’s Stance: Multiple notices and recovery communications were sent. Since the taxpayer failed to file a reply or appear for a hearing, the Proper Officer passed an ex-parte order based on the data available in the department’s records (GSTR-1 vs. GSTR-3B or 2A vs. 3B).
The Petitioner’s Stance: They challenged the order via a Writ Petition, essentially seeking a “reset” to explain the discrepancies.

The Judicial Verdict: The “10% Opportunity”

The High Court ruled in favour of the Assessee (Remanded), quashing the ex-parte order based on the following principles:

1. Substantive Justice Over Technicality

The Court observed that an adjudication order passed without the taxpayer’s reply is often one-sided and may lead to inflated demands. To ensure that the tax liability is determined accurately on its merits, the Court set aside the order and “restored” the proceedings to the reply stage.

2. Pre-condition of 10% Deposit

To prevent taxpayers from using the court to merely delay recovery, the Court imposed a mandatory condition:

The petitioner must deposit 10% of the disputed tax amount.
This 10% acts as a “security” or “pre-deposit” (similar to the requirement for a statutory appeal under Section 107).
The final tax liability would be adjusted against this deposit after the fresh adjudication.

3. Restoring Natural Justice

By setting aside the order, the Court effectively gave the petitioner a “second innings” to:

File a comprehensive reply to the SCN.
Avail a personal hearing (as mandated under Section 75(4)).

Strategic Takeaways for Taxpayers in 2026

Writ vs. Appeal: Usually, if you miss the 3-month deadline to file an appeal (Section 107), a Writ Petition is the only way to challenge an ex-parte order. Courts are often sympathetic if you are willing to pay the 10% pre-deposit.
The “Summary” Risk: Never ignore an SCN on the portal. Ex-parte orders are often based on automated “system-glitch” discrepancies that could be easily explained with a reconciliation statement.
Stay on Recovery: Once the High Court sets aside the order and remands the matter, any bank attachments or recovery proceedings initiated by the department under Section 79 must be withdrawn.
Timelines for Reply: Upon remand, the Court usually gives a fixed timeline (e.g., 2 to 4 weeks) to file the reply. Failure to meet this “second chance” deadline will almost certainly result in the finality of the demand without further judicial mercy.

HIGH COURT OF KARNATAKA

Hotel Royal Suits

State of Karnataka^*

S Sunil Dutt Yadav, J.

WRIT PETITION NO. 6543 OF 2026 (T-RES)

FEBRUARY 27, 2026

Bapat Sampath, Adv. for the Petitioner. K. Hemakumar, AGA for the Respondent.

ORDER

1. Sri. K. Hemakumar, learned Additional Government Advocate accepts notice for the respondents.

2. The petitioner has assailed the validity of the order of adjudication at Annexure-D passed under Section 73(9) of the Karnataka Goods and Services Act, 2017. The authority has proceeded on the premise that the taxpayer has short declared the tax liability.

3. A perusal of the order of adjudication would reveal that the authority has asserted that though there has been communication of the notices including recovery proceedings, the petitioner having failed to reply, the authority has proceeded to adjudicate the matter on the available material.

4. Learned counsel for the petitioner submits that the non-reply of the show-cause notice was due to bona-fide lapse and the petitioner has the material to demonstrate and meet the grounds raised in the show-cause notice.

5. Noticing that the order passed is in-effect an ex-parte order, in the sense that the authority did not have benefit of a reply to the show-cause notice, it would be appropriate to set aside the order and remit the matter back for consideration on merits and it would be appropriate to enable the petitioner to make out reply to the show-cause notice.

6. Accordingly, the order at Annexure-D is set aside. Matter is remitted to the stage of reply to show-cause notice. Petitioner to appear before respondent No.5 without further notice on 25.03.2026. Petitioner to make payment of 10% of the tax due. Such payment would be subject to adjudication to be made.

7. It is made clear that, if the petitioner fails to take benefit of opportunity granted, the indulgence granted by this Court will stand revoked. All contentions are kept open.

Accordingly, petition is disposed of.